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11-3 Customer Relationship Management A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers. What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer?

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11-5 Can Offering Discounts Achieve Customer Loyalty? No! Retail strategies like these can be copied by competitors These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer McGraw-Hill Companies, Inc./Gary He, photographer

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11-7 Information About Each Customer in the Database History of purchases Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion Customer contacts by retailer (touch points) --visits to web site, inquires to call center, direct mail sent to customer Customer preferences Descriptive information about customer Customer’s responses to marketing activities

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11-8 Approaches for Collecting Customer Information Need to connection contacts with a specific customer identifier Ask for identifying information –Telephone number, name and address Encourage use of frequent shopper cards Link checking account number and/or third party credit cards to customer

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11-9 Privacy Concerns Control over Collection Do customers know what information is being collected? Do customers feel they can decide on the amount and type of information collected by retailers? Control over Use Do customers know how the information will be used by the retailer? Will the retailer share the information with third parties? Steve Cole/Getty Images

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11-10 Frequent Shopper Cards Card is often squeezed out of wallet Customers forget to bring it to the store Might not even show it if in a hurry (c) image100/PunchStock

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11-11 Heighten Concerns When Using Electronic Channel Information collected without the awareness of customers Collecting click stream data using cookies Similar to an invisible person videotaping a customer as they walk through a store Stockbyte/Punchstock Images

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11-13 Consumer Protection Differences United States Limited protection in specific areas –Credit reporting –Video rentals –Banking –Medical records European Union Information only can only be collected for specific purposes Purpose must be disclosed to customer Information can only be used for specific purpose Information can not be exported to countries with less stringent regulations

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11-19 Identifying Best Customers Estimating Lifetime Value Based on assumptions that the customer’s future purchase behaviors will be the same as they have been in the past Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis) (c) Brand X Pictures/PunchStock

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11-20 Which Customer Probably Has the Greatest Lifetime Value Purchases Over Last 10 Weeks

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11-27 Illustration of RFM Application A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database: Average order size for customers in cell - $40 Contribution margin – 50% Response rate – 5% Cost of catalog and mailing -$.75 Will the retailer make a profit mailing to this RFM segment?

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11-28 Illustration of RFM Application A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database: Average order size for customers in cell - $40 Contribution margin – 50% Response rate – 5% Cost of catalog and mailing -$.75 Will the retailer make a profit mailing to this RFM segment? $20.00 contribution x.05 response rate - $.75 cost = $.25 profit per catalog mailed